Russia and Iran have begun to take modest, but potentially significant, steps to withdraw the U. S. dollar from their bilateral trade, launching a deal that formulates their own currencies.
Iran’s Currency Exchange (ICE) indexed the ruble-rial pair in July, following a statement to Moscow through Iranian central bank governor Ali Salehabadi earlier this month.
The new agreement means that any of the countries can now settle their industrial debts in the currencies of the others. The first exchange was made on July 19, with an exchange of 3 million rubles ($48,000). Also on the day that Russian President Vladimir Putin arrived in Iran. for talks with President Ebrahim Raisi and Supreme Leader Ali Khamenei.
Iranian media reported that the new formula could reduce the demand for dollars to $3 billion a year. The bilateral industry between Iran and Russia is worth $4 billion in 2021 but, finding common cause in its pariah prestige in the West, the two countries say we hope to build a bilateral industry at $8 billion in the short term.
The new industrial agreement allows them to avoid the use of dollars and, in doing so, also avoid the effect of certain foreign sanctions. Both countries are subject to extensive U. S. industrial embargoes. THE US and others, in the case of Russia due to its invasion of Ukraine in February; in the case of Iran because of its nuclear program and other problems.
Iranian officials say they hope to expand the new formula of the bilateral agreement to include the currencies of other key trading partners, adding the Turkish lira, Indian rupee and UAE dirham.
“We will be offering other currencies in the long term to have a diversified basket and the influence of currencies like the dollar,” Salehabadi said on July 21.
If this happens, it will have the effect of creating a network of agreements that allow Iran to operate without resorting to the dollar or the euro. However, those interested in the other aspect of the deal may still be wary of the threat of being caught up in secondary sanctions.
Iran’s Deputy Foreign Minister for Economic Diplomacy Mehdi Safari also floated the idea of creating a new interbank messaging formula between Iran and Russia. from its headquarters in Belgium.
Many Russian and Iranian banks have been excluded from the Swift formula because of the sanctions imposed on both countries.
Russia already has its own banking messaging system, SPFS (Peredachi Finansovykh Soobscheniy System), which was established after the invasion of Crimea in 2014. The Financial Times reported in March that it is being used through banks for invoices within the Eurasian Economic Union. – an organization that includes Russia’s neighbors Armenia, Belarus, Kazakhstan and Kyrgyzstan. Iran has also thought about joining this system.
More recently, in June, Russia’s Rostec said it had developed a blockchain platform called CELLS, which could upgrade Swift.
Speaking to the media in late July, Iran’s central bank governor Safari said: “Two countries that need to de-dollarize their transactions will have to have a special formula similar to Swift. . . We have almost reached a very smart agreement. “
In pursuing those initiatives, Russia and Iran are following the lead of other countries that have sought their dependence on Western networks.
China has developed its own CIPS interbank agreement formula that has been in operation since 2015. In April, Russian Finance Minister Anton Siluanov called for the payment formulas of the BRICS countries (Brazil, Russia, India, China and South Africa) to be more efficient. integrated.
However, such opportunities have limitations. In particular, they can be slower, more expensive, and more error-prone.